In the first half of 2024, money market instruments became the main source of capital importation, and foreign investors began looking more and more to Nigerian treasury notes.
Â
Particularly, Treasury bills were significantly oversubscribed, indicating robust investor demand fuelled by advantageous returns in Nigeria’s fixed-income market.
This increase demonstrates how tighter monetary policy and rising yields have attracted both domestic and foreign investors looking for quick profits.
Treasury bills have become much more appealing as a result of the Central Bank of Nigeria’s (CBN) aggressive monetary tightening, which has been characterised by several interest rate hikes.
The CBN increased the Monetary Policy Rate (MPR) from 18.75% in January to 26.25% by June 2024 in an attempt to control inflation and stabilise the naira; as of this writing, the MPR stands at 27.25%.
Demand for fixed-income investments, especially treasury bills, surged as a result of the dramatic increase in interest rates.
Increasing Yields Drive Demand
Treasury bill rates jumped in H1 2024 for all tenors, making them a popular option for both domestic and international investors.
The returns on the 91-day, 182-day, and 364-day bills were all appealing, rising from single-digit levels earlier in the year to 16.37%, 17.46%, and 20.62%, respectively.
Treasury bills are now a popular choice for investors looking for big returns on short-term assets due to the steep increase in yields.
The government made N3.46 trillion in Treasury bills available for subscription at the time. The government’s estimates were greatly exceeded by investor demand, nevertheless, as total subscriptions reached N18.12 trillion, a phenomenal 524.13% increase over the first offer.
Investors received N8.16 trillion, 236.03% more than the government’s initial offering, however only 45.03% of the excess demand was satisfied despite this oversubscription.
Foreign Portfolio Investors Drive Market Growth
This increase in demand for money market products was mostly driven by foreign portfolio investors, or FPIs. The $2.68 billion that FPIs put in Nigerian money market instruments shows how appealing government bills are in an environment where interest rates are rising. Treasury bills were especially appealing to overseas investors looking for rapid profits in a comparatively safe market area because of their high yield and short duration.
Money market instruments accounted for the majority of the $3.48 billion in foreign portfolio investments in Nigeria in the first half of 2024.
The 2024 numbers show a 360% rise over the $756.13 million recorded in H1 2023, indicating a renewed interest in Nigeria’s fixed-income assets by international investors.
Conclusion
The increase in foreign investment in Nigerian treasury bills in the first quarter of 2024 is evidence of the CBN’s hawkish policies, which have raised yields sharply and increased the appeal of government assets.
The high level of investor confidence in Nigeria’s fixed-income market is demonstrated by the oversubscription of treasury notes.
Nonetheless, the inclination towards short-term investments also conveys cautious optimism, as investors continue to be aware of long-term economic hazards such as currency instability and inflationary pressures.
The CBN’s capacity to strike a compromise between currency stabilization and inflation control in order to preserve investor confidence in the second half of 2024 will determine if this momentum can be maintained.
